NHS Pension advice

Flugelhorn

redlfc wrote: »

thats very helpful - thank you

based on those figures - unless im mistaken it doesnt seem like the LTA has a massive financial impact to the point where its worth leaving the NHS pension/retiring when youve reached the LTA

or did i misunderstand?

I agree that the impact is not as great as it might initially seem - there is also the advantage of the life insurance / death in service element of the pension which is worth keeping in the scheme for.

Twoplus

Have you considered paying off your student loan early? For most people it isn't a good Idea as they will never pay it all off due to low earnings, but it looks like you will and you will save some of that 6.5% interest.

redlfc

crv1963 wrote: »

DC pensions are accessed currently at 55 but at some point it will be 57 without reduction.

They are completely different to DB schemes. The clue is in the title- Defined Contribution, you contribute, carry all the risk- choice of provider, funds to invest in and a crash at some point in time, but hopefully not just as you go to take them.

Defined Benefit- you pay your money, the employer promises to pay an inflation linked pension depending on your length of service and salary.

DB wins hands down in my book!

ERRBO- you are paying now to cancel a reduction for taking your pension earlier. The earlier you start the cheaper it is, saving the size of pot needed could be hard and if there is a big stock market crash just before or after you retire then you may be forced to delay. By paying in you are getting certainty at 65 (just realised your SP is 68).

You choose to increase present contributions so you can access the pension up to 3 years earlier so at your age for 3.66% or roughly £1100 pa for 40 years (44000k) you get your unreduced pension 3 years before it is due, profit of almost 80k.

Not allowing for inflation or rise in wages. When I qualified a top band Charge Nurse earned 12k pa including shift allowance, now it's nearer 46k!

The ERRBO cancels risk, gets you your pension earlier without reduction. You may also do better with ISAs, but are you certain?

If I was starting my career over I would use a mix of ERRBO and ISA.

£2880 is the current maximum a none taxpayer can put into a SIPP, gets made up to £3600 by the HMRC. If thinking of doing this ask a new question/ thread as there are others that are more knowledgeable about the best provider/ funds to look at.

If it is any help one of my sons at 21 is investing 100% into equities in his pension accepting at some point it may drop by 50% but time in should recover, the market should let him continue on and he'll review the choice in his 40s.

You can hold the same funds in either a SIPP or an ISA, it is just the tax wrapper that is different.

The truth is that any consensus will have different views within it, what is good at 25 maybe useless at 30, 40 or 50.

Another option you may want to consider in your research may be an appointment with a Financial Adviser? Firm up some plans/ ideas and read a bit more here and elsewhere so you have a good idea of what you want from the appointment?

thanks for all your advice MR CRV - althogh I could speak to an IFA I feel like a lot of the information is freely available on forums with nice posters such as yourself!

redlfc

Twoplus wrote: »

Have you considered paying off your student loan early? For most people it isn't a good Idea as they will never pay it all off due to low earnings, but it looks like you will and you will save some of that 6.5% interest.

i have but the general advice has been to treat as 9% graduate tax and focus on saving for important life events - as thats money i will need in the near future despite the fact I would end up paying more for my student loan this way

Sawman

OP, in brief stay in the scheme and concentrate on your career.

I would imagine that during your working life many things will change with the pension scheme. You will almost certainly need to consider the LTA at some point. Many consultants retire early or reduce working hours to mitigate this currently, which is fine if you are in the 1995 section as the adjustments are kinder than in the 2015 section.

it is likely your contribution rates will increase (I'm paying in 13.5% these days) and your benefits may change - I am now on the 4th iteration of NHS pension schemes.
as an illustration I am an AHP Consultant and the 2015 section pension is increasing by about £1.5K PA for each year of employment. although I am paying £11K of my gross into the scheme to get this.

tibbles209

Another vote for ERRBO from me. I'm a 28 year old junior doctor and pay an extra 3.69% of my pensionable pay to buy out 3 years early retirement reductions. Like you I am concerned that the state pension age (and thus the 2015 NHS pension age) will be ~70 by the time I get there so am planning for how to retire significantly earlier than this and bridge without breaching the LTA. ERRBO doesn't increase the value of your pension in LTA terms (provided you do indeed take it early as the scheme intends), it just brings it back a few years, so is a tax efficient way of bridging 3 years until your normal retirement date.

Of course if you want to retire more than 3 years before SPA you'll need to make other plans too.

redlfc

tibbles209 wrote: »

Another vote for ERRBO from me. I'm a 28 year old junior doctor and pay an extra 3.69% of my pensionable pay to buy out 3 years early retirement reductions. Like you I am concerned that the state pension age (and thus the 2015 NHS pension age) will be ~70 by the time I get there so am planning for how to retire significantly earlier than this and bridge without breaching the LTA. ERRBO doesn't increase the value of your pension in LTA terms (provided you do indeed take it early as the scheme intends), it just brings it back a few years, so is a tax efficient way of bridging 3 years until your normal retirement date.

Of course if you want to retire more than 3 years before SPA you'll need to make other plans too.

thanks for the help!

do you have to pay the extra 3.69% per year for whole career or certain number of years to being able to access pension 3 years earlier

does seem that would be an awful lot - paying an extra 3.69% of my salary every year of my career just to be able to access pension 3 years earlier - im sure that will likely cost me near 100k across my career

Caveat being I assume the pension I receive will be the same at 65 as it would be at 68 - so if say pension is 40ka year then I would have paid 100k across career but willl earn back 120k - is that right in assuming that?

tibbles209

Yes that would be right, you would pay the extra on all pensionable pay throughout your career. You can only buy out the reduction on all pension accumulated since joining the ERRBO scheme though, you can't buy it out retrospectively so worth joining ASAP if you are going to do it. It may seem a lot to you, but bear in mind that is 3.69% of your gross pensionable pay, your take home pay would be reduced by rather less assuming you are a higher rate taxpayer, and you would then get an additional 3 years of (a probably fairly hefty) pension in return. I think it is a good deal, and in our circumstances the tax efficiency is a big consideration.

redlfc

tibbles209 wrote: »

Yes that would be right, you would pay the extra on all pensionable pay throughout your career. You can only buy out the reduction on all pension accumulated since joining the ERRBO scheme though, you can't buy it out retrospectively so worth joining ASAP if you are going to do it. It may seem a lot to you, but bear in mind that is 3.69% of your gross pensionable pay, your take home pay would be reduced by rather less assuming you are a higher rate taxpayer, and you would then get an additional 3 years of (a probably fairly hefty) pension in return. I think it is a good deal, and in our circumstances the tax efficiency is a big consideration.

Thank you for your reply ! It would only be reduced by rather less if your basic pay is above the 40% tax bracket which as junior docs ours is not - our basic under pay is under £46250 and hence the tax relief on the extra 3.66% is still only 20%

Have you done any calculations as to how much you’d be paying across your career for ERRBO vs the amount you’d make by accessing the same pension pot 3 years earlier ? I haven’t done so but let’s say you’re pension pa was 40k at 68 - if you paid into ERRBO you could access this at 65 thus earning an extra 120k - but if you had to pay near enough 120k extra throughout your career especially when young and in prime in terms of other expenses - then I don’t really see the worth of it

tibbles209

While your pension contributions are calculated as a percentage your basic pay, you pay tax on your entire pay including your banding supplement (personal allowance notwithstanding), and increasing pension contributions would take your overall taxable income down, so if you are a higher rate taxpayer, less of your taxable income would be above the higher rate. I appreciate at 25 you are likely ~FY2 level and may not yet be a higher rate taxpayer, but you will be soon and for the vast majority of your working life.

It is impossible for me to work out exactly what ERRBO will cost me personally vs what I will personally get back as I do not know how much of my career I will work full time (I suspect I will end up working part time for many years) and thus have no idea how much I will earn, but you can use a hypothetical example to demonstrate the cost/value of ERRBO.

I have a basic (pensionable) pay of ~£34,200/yr currently, with an overall pay which takes me significantly above the higher rate tax threshold (I am in Scotland though so this hits me at a lower income than you). If I calculate hypothetically on the assumption that my pay is fixed at this level between ages 25-65;

-I pay £1262/yr = £50,480 over 40 yrs in ERRBO contributions, however as these contributions reduce my higher rate tax obligation (41% in Scotland) these contributions cost me the equivalent of £29,783 in take home pay.
-At age 65 when I take my pension (based on my current state pension age of 68, although this is probably optimistic) it would be worth 34,200/54 = 633.33 x 40 = £25,333/yr. I would get to use my tax-free allowance of £11,850 each of the years I am taking it (assuming I have indeed retired early), and the remainder would be taxed at ~21% (the Scottish tax system is too complicated now so it would actually work out slightly less than this but for simplicity...), resulting in my take home pension being £22,501/year, or £67,504 in total over the 3 extra years I get to take my pension.

The actual numbers, given that I expect my pay to substantially rise over the years, will of course be much bigger, and if I work full time for enough of my career I may even end up paying a bit of higher rate tax on a proportion of my pension, but its unlikely that I would lose out overall.
You may decide that the money would serve you better in your younger years than saving to retire 3 years earlier and that is fair enough, but if you do want to retire early I think you will struggle to find a way of bridging that gap with a similar pension income at less overall cost to you than ERRBO.